ACC FINAL 2

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013 are as follows: Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones. What is the adjusted book value of Jones after the stock issuance? A. $1,500,000. B. $1,200,000. C. $1,350,000. D. $1,080,000. E. $1,335,000.

A. $1,500,000.

Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company. On January 2, 2011, Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2, 2031 at a premium of $500,000. On January 1, 2013, Franklin acquired 20 percent of these same bonds on the open market at 97.66. Both companies use the straight-line method of amortization. What adjustment should be made to Franklin's 2014 beginning Retained Earnings as a result of this bond acquisition? A. $107,100. B. $113,400. C. $119,700. D. $144,000. E. $152,000.

A. $107,100.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013 are as follows: Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. When Ryan's new percent ownership is rounded to a whole number, what adjustment is needed for Ryan's investment in Chase account? A. $16,000 decrease. B. $60,000 decrease. C. $64,000 increase. D. $64,000 decrease. E. No adjustment is necessary.

A. $16,000 decrease.

Campbell Inc. owned all of Gordon Corp. For 2013, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2013, with a book value of $297,000. The parent acquired the bonds on that date for $281,000. During 2013, Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000. What is consolidated net income for 2013? A. $406,000. B. $374,000. C. $378,000. D. $410,000. E. $394,000.

A. $406,000.

Tray Co. reported current earnings of $560,000 while paying $56,000 in cash dividends. Sparrish Co. earned $140,000 in net income and distributed $14,000 in dividends. Tray held a 70% interest in Sparrish for several years, an investment that it originally acquired by transferring consideration equal to the book value of the underlying net assets. Tray used the initial value method to account for these shares. On January 1, 2013, Sparrish acquired in the open market $70,000 of Tray's 8% bonds. The bonds had originally been issued several years ago at 92, reflecting a 10% effective interest rate. On the date of the bond purchase, the book value of the bonds payable was $67,600. Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds. What is the non-controlling interest's share of the subsidiary's net income? A. $42,000. B. $37,800. C. $39,600. D. $40,070. E. $44,080.

A. $42,000.

Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below: Additional information for 2013: Net cash flow from operating activities was: A. $43,000. B. $44,800. C. $46,200. D. $50,000. E. $25,000.

A. $43,000.

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Compute the non-controlling interest in Smith at date of acquisition. A. $486,000. B. $480,000. C. $300,000. D. $150,000. E. $120,000.

A. $486,000.

Johnson, Inc. owns control over Kaspar Inc, Johnson reports sales of $400,000 during 2013 while Kaspar reports $250,000. Kaspar transferred inventory during 2013 to Johnson at a price of $50,000. On December 31, 2013, 30% of the transferred goods are still in Johnson's inventory. Consolidated accounts receivable on January 1, 2013 was $120,000, and on December 31, 2013 is $130,000. Johnson uses the direct approach in preparing the statement of cash flows. How much is cash collected from customers in the consolidated statement of cash flows? A. $590,000. B. $610,000. C. $625,000. D. $635,000. E. $650,000.

A. $590,000.

Cadion Co. owned a controlling interest in Knieval Inc. Cadion reported sales of $420,000 during 2013 while Knieval reported $280,000. Inventory costing $28,000 was transferred from Knieval to Cadion (upstream) during the year for $56,000. Of this amount, twenty-five percent was still in ending inventory at year's end. Total receivables on the consolidated balance sheet were $112,000 at the first of the year and $154,000 at year-end. No intra-entity debt existed at the beginning or ending of the year. Using the direct approach, what is the consolidated amount of cash collected by the business combination from its customers? A. $602,000. B. $644,000. C. $686,000. D. $714,000. E. $592,000.

A. $602,000.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. Using the indirect method, where does the decrease in accounts receivable appear in a consolidated statement of cash flows? A. $8,000 increase to net income as an operating activity. B. $8,000 decrease to net income as an operating activity. C. $6,400 increase to net income as an operating activity. D. $6,400 decrease to net income as an operating activity. E. $8,000 increase as an investing activity.

A. $8,000 increase to net income as an operating activity.

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What is the new percent ownership of Webb in Jones after the stock issuance? A. 75%. B. 90%. C. 80%. D. 64%. E. 60%.

A. 75%.

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true? A. Additional paid-in capital on the parent company's books will decrease. B. Investment in subsidiary will increase. C. Treasury stock on the parent's books will increase. D. Treasury stock on the parent's books will decrease. E. No adjustment is necessary.

A. Additional paid-in capital on the parent company's books will decrease.

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true? A. Parent company earnings per share equals consolidated earnings per share when the equity method is used. B. Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used. C. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value. D. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value. E. Preferred dividends are not deducted from net income for consolidated earnings per share.

A. Parent company earnings per share equals consolidated earnings per share when the equity method is used.

Where do intra-entity sales of inventory appear in a consolidated statement of cash flows? A. They do not appear in the consolidated statement of cash flows. B. Supplemental schedule of noncash investing and financing activities. C. Cash flows from operating activities. D. Cash flows from investing activities. E. Cash flows from financing activities.

A. They do not appear in the consolidated statement of cash flows.

How do intra-entity sales of inventory affect the preparation of a consolidated statement of cash flows? A. They must be added in calculating cash flows from investing activities. B. They must be deducted in calculating cash flows from investing activities. C. They must be added in calculating cash flows from operating activities. D. Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required. E. They must be deducted in calculating cash flows from operating activities.

D. Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required.

Goehring, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year reports $40,000 Non-controlling Interest in Harry Corp.'s Income. Harry paid dividends in the amount of $100,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year? A. Increase in the financing section of $70,000, and decrease in the operating section of $30,000. B. Increase in the operating section of $70,000, and decrease in the financing section of $30,000. C. Increase in the operating section of $70,000. D. Decrease in the financing section of $30,000. E. No effects.

D. Decrease in the financing section of $30,000.

Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements? A. The sponsoring firm has the obligation to absorb potentially significant losses of the VIE. B. The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership. C. The sponsoring firm has the right to receive potentially significant benefits of the VIE. D. The sponsoring firm has power through voting rights to direct the entity's activities that significantly impact economic performance. E. The sponsoring firm is a primary beneficiary of the VIE.

B. The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership.

How do subsidiary stock warrants outstanding affect consolidated earnings per share? A. They will be included in both basic and diluted earnings per share if they are dilutive. B. They will only be included in diluted earnings per share if they are dilutive. C. They will only be included in basic earnings per share if they are dilutive. D. Only the warrants owned by the parent company affect consolidated earnings per share. E. Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings per share.

B. They will only be included in diluted earnings per share if they are dilutive.

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2011, when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2014. On January 1, 2014, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. On January 1, 2014, Cocker issued 10,000 additional shares of common stock for $35 per share. Popper acquired 8,000 of these shares. How would this transaction affect the additional paid-in capital of the parent company? A. increase it by $28,700. B. increase it by $16,800. C. $0. D. increase it by $280,000. E. increase it by $593,600.

C. $0.

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Determine the amount and account to be recorded for Nichols' investment in Smith. A. $1,324,000 for Investment in Smith. B. $1,200,000 for Investment in Smith. C. $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock. D. $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock. E. $1,448,000 for Investment in Smith's Common Stock.

C. $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.

Davidson, Inc. owns 70 percent of the outstanding voting stock of Ernest Company. On January 2, 2011, Davidson sold 8 percent bonds payable with a $5,000,000 face value maturing January 2, 2031 at a premium of $400,000. On January 1, 2013, Ernest acquired 30 percent of these same bonds on the open market at 97.6. Both companies use the straight-line method of amortization. What adjustment should be made to Davidson's 2014 beginning Retained Earnings as a result of this bond acquisition? A. $114,000. B. $122,000. C. $136,000. D. $144,000. E. $152,000.

C. $136,000.

Carlson, Inc. owns 80 percent of Madrid, Inc. Carlson reports net income for 2013 (without consideration of its investment in Madrid, Inc.) of $1,500,000. For the same year, Madrid reports net income of $705,000. Carlson had bonds payable outstanding on January 1, 2013 with a carrying value of $1,200,000. Madrid acquired the bonds on the open market on January 3, 2013 for $1,090,000. For the year 2013, Carlson reported interest expense on the bonds in the amount of $96,000, while Madrid reported interest income of $94,000 for the same bonds. What is Carlson's share of consolidated net income? A. $2,064,000. B. $2,066,000. C. $2,176,000. D. $2,207,000. E. $2,317,000.

C. $2,176,000.

On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On January 1, 2013, Garvin Co. sold 10,000 shares of previously unissued common stock for $15 per share. Riney did not acquire any of these shares. What is the balance in Non-controlling Interest in Garvin Co. after the sale of the 10,000 shares of common stock? A. $138,000. B. $101,000. C. $280,000. D. $230,000. E. $168,000.

C. $280,000.

Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par preferred stock and 60% of the outstanding common stock of Brett Co. When Brett reported net income of $780,000, what was the non-controlling interest in the subsidiary's income? A. $234,000. B. $273,000. C. $302,000. D. $312,000. E. $284,000.

C. $302,000.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013 are as follows: Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. What should the adjusted book value of Chase be after the treasury shares were purchased? A. $400,000. B. $480,000. C. $320,000. D. $336,000. E. $464,000.

C. $320,000.

The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp., are presented below: Additional information for 2013: Net cash flow from operating activities was: A. $92,000. B. $27,000. C. $63,000. D. $29,000. E. $34,000.

C. $63,000.

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except: A. Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances. B. Subsequent interest revenue/expense must be removed although these balances fail to agree in amount. C. A gain or loss must be recognized by both parent and subsidiary companies. D. Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process. E. The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company.

C. A gain or loss must be recognized by both parent and subsidiary companies.

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants? A. Parent's earnings per share plus subsidiary's earnings per share. B. Parent's net income divided by parent's number of shares outstanding. C. Consolidated net income divided by parent's number of shares outstanding. D. Average of parent's earnings per share and subsidiary's earnings per share. E. Consolidated income divided by total number of shares outstanding for the parent and subsidiary.

C. Consolidated net income divided by parent's number of shares outstanding.

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: The consolidation entry at date of acquisition will include (referring to Smith): A. Debit Common stock $500,000 and debit Preferred stock $120,000. B. Debit Common stock $400,000 and debit Additional paid-in capital $160,000. C. Debit Common stock $500,000 and debit Preferred stock $300,000. D. Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. E. Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

C. Debit Common stock $500,000 and debit Preferred stock $300,000.

Which of the following is not a potential loss or return of a variable interest entity? A. Entitles holder to residual profits. B. Entitles holder to benefit from increases in asset fair value. C. Entitles holder to receive shares of common stock. D. If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. E. If leased asset declines below the residual value, honoring the guarantee will produce a loss.

C. Entitles holder to receive shares of common stock.

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the non-controlling interest in the subsidiary's net income assigned? A. Income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock. B. There is no allocation to the non-controlling interest because the parent owns 100% of the common stock and net income belongs to the residual owners. C. Income is assigned as 40 percent of the preferred stock dividends. D. Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends. E. Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

C. Income is assigned as 40 percent of the preferred stock dividends.

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true? A. Since the sale was made at the end of the year, the parent's investment account is not affected. B. Since the shares were sold for less than book value, the parent's investment account must be increased. C. Since the shares were sold for less than book value, the parent's investment account must be decreased. D. Since the shares were sold for less than book value but the parent did not buy any of the shares, the parent's investment account is not affected. E. None of these.

C. Since the shares were sold for less than book value, the parent's investment account must be decreased.

Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share? A. The preferred stock is callable. B. The preferred stock is convertible. C. The preferred stock is cumulative. D. The preferred stock is noncumulative. E. The preferred stock is participating.

C. The preferred stock is cumulative.

Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on January 1, 2012, with a book value of $265,000. The parent acquired the bonds on that date for $288,000. Subsequently, Vontkins reported interest income of $25,000 in 2012 while Quasimota reported interest expense of $29,000. Consolidated financial statements were prepared for 2013. What adjustment would have been required for the retained earnings balance as of January 1, 2013? A. reduction of $27,000. B. reduction of $4,000. C. reduction of $19,000. D. reduction of $30,000. E. reduction of $20,000.

C. reduction of $19,000.

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: If Smith's net income is $100,000 in the year following the acquisition, A. the portion allocated to the common stock (residual amount) is $92,800. B. $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income. C. the non-controlling interest balance will be $27,200. D. the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock. E. the non-controlling interest in subsidiary net income is $30,800.

C. the non-controlling interest balance will be $27,200.

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year's dividend was paid. How is the non-controlling interest in the subsidiary's net income assigned? A. Income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values. B. There is no allocation to the non-controlling interest because there are no dividends in arrears. C. Income is assigned as 40 percent of the preferred stock dividends. D. Income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends. E. Income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.

D. Income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends.

Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share. On January 1, 2013, Odom issued 3,000 new shares to the public for $70 per share. How does this transaction affect the Investment in Odom Inc. account? A. It should be decreased by $141,120. B. It should be increased by $176,400. C. It should be increased by $48,000. D. It should be decreased by $128,400. E. It is not affected since the shares were sold to outside parties.

D. It should be decreased by $128,400.

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity? A. The power to direct the most significant economic performance activities. B. The power through voting or similar rights to direct activities which significantly impact economic performance. C. The obligation to absorb potentially significant losses of the entity. D. No ability to make decisions about the entity's activities. E. The right to receive potentially significant benefits of the entity.

D. No ability to make decisions about the entity's activities.

Pursley, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year reports $50,000 Non-controlling Interest in Harry Corp.'s Income. Harry paid dividends in the amount of $80,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year? A. Option A B. Option B C. Option C D. Option D E. Option E

D. Option D

A parent company owns a 70 percent interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70 percent interest in the new shares. Which of the following statements is true? A. Since the sale was made at the end of the year, the parent's investment account is not affected. B. Since the shares were sold for book value, the parent's investment account must be increased. C. Since the shares were sold for book value, the parent's investment account must be decreased. D. Since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the price of the new shares. E. None of these.

D. Since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the price of the new shares.

On January 1, 2013, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2013? A. The difference is added to the carrying value of the debt. B. The difference is deducted from the carrying value of the debt. C. The difference is treated as a loss from the extinguishment of the debt. D. The difference is treated as a gain from the extinguishment of the debt. E. The difference does not influence the consolidated financial statements.

D. The difference is treated as a gain from the extinguishment of the debt.

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true? A. The investment in subsidiary will decrease. B. Additional paid-in capital will decrease. C. Retained earnings will increase. D. The investment in subsidiary will increase. E. No adjustment will be necessary.

D. The investment in subsidiary will increase.

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true? A. The parent's additional paid-in capital will be increased. B. The parent's investment in subsidiary will be increased. C. The parent's retained earnings will be increased. D. The parent's additional paid-in capital will be decreased. E. The parent's retained earnings will be decreased.

D. The parent's additional paid-in capital will be decreased.

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2011, when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2014. On January 1, 2014, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. On January 1, 2014, Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share. None of these shares belonged to Popper. How would this transaction have affected the additional paid-in capital of the parent company? A. $0. B. decrease it by $32,900. C. decrease it by $45,700. D. decrease it by $49,400.

D. decrease it by $49,400.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. How will dividends be reported in consolidated statement of cash flows? A. $15,000 decrease as a financing activity. B. $25,000 decrease as a financing activity. C. $10,000 decrease as a financing activity. D. $23,000 decrease as a financing activity. E. $17,000 decrease as a financing activity.

E. $17,000 decrease as a financing activity.

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2013. What was the amount of Stoop's earnings that should be included in calculating consolidated diluted earnings per share? A. $300,000. B. $240,000. C. $257,600. D. $322,000. E. $201,250.

E. $201,250.

Which of the following statements is true concerning variable interest entities (VIEs)? 1) The role of the VIE equity investors can be fairly minor. 2) A VIE may be created specifically to benefit its sponsoring firm with low-cost financing. 3) VIE governing agreements often limit activities and decision making. 4) VIEs usually have a well-defined and limited business activity. A. 2 and 4. B. 2, 3, and 4. C. 1, 2, and 4. D. 1, 2, and 3. E. 1, 2, 3, and 4.

E. 1, 2, 3, and 4.

Which of the following statements is false concerning variable interest entities (VIEs)? A. Sometimes VIEs do not have independent management. B. Most VIEs are established for valid business purposes. C. VIEs may be formed as a source of low-cost financing. D. VIEs have little need for voting stock. E. A VIE cannot take the legal form of a partnership or corporation.

E. A VIE cannot take the legal form of a partnership or corporation.

f newly issued debt is issued from a parent to its subsidiary, which of the following statements is false? A. Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment. B. There will be $0 net gain or loss on the bond transaction. C. Interest expense needs to be eliminated on the consolidated income statement. D. Interest revenue needs to be eliminated on the consolidated income statement. E. A net gain or loss on the bond transaction will be reported.

E. A net gain or loss on the bond transaction will be reported.

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer? A. Subsidiary net income is not affected by a gain on bond transaction. B. Subsidiary net income is not affected by a loss on bond transaction. C. Parent Company net income is not affected by a gain on bond transaction. D. Parent Company net income is not affected by a loss on bond transaction. E. Consolidated net income is not affected by a gain or loss on bond transaction.

E. Consolidated net income is not affected by a gain or loss on bond transaction.

A variable interest entity can take all of the following forms except a(n) A. Trust. B. Partnership. C. Joint venture. D. Corporation. E. Estate.

E. Estate.

If a subsidiary issues a stock dividend, which of the following statements is true? A. Investment in subsidiary on the parent's books will increase. B. Investment in subsidiary on the parent's books will decrease. C. Additional paid-in capital on the parent's books will increase. D. Additional paid-in capital on the parent's books will decrease. E. No adjustment is necessary.

E. No adjustment is necessary.

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013 are as follows: Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones. After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account? A. $270,000 increase. B. $270,000 decrease. C. $27,000 increase. D. $27,000 decrease. E. No adjustment is necessary.

E. No adjustment is necessary.

The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp., are presented below: Additional information for 2013: Net cash flow from financing activities was: A. $(129,000). B. $(96,000). C. $(300,000). D. $(80,000).

A. $(129,000).

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What is the adjusted book value of Jones after the sale of the shares? A. $200,000. B. $1,400,000. C. $1,280,000. D. $1,050,000. E. $1,440,000.

B. $1,400,000.

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Compute the goodwill recognized in consolidation. A. $800,000. B. $310,000. C. $124,000. D. $0. E. $(196,000.)

B. $310,000.

Keenan Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2013, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc. purchased the bonds in the open market for $19,000. Keenan is a 90% owned subsidiary of Ross. The bonds pay 8% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2013. A. $3,000 gain. B. $3,000 loss. C. $1,000 gain. D. $1,000 loss. E. $2,000 gain.

C. $1,000 gain.

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method? A. Parent's dividends would be subtracted as a financing activity. B. Gain on sale of land would be deducted from net income. C. Non-controlling interest in net income of subsidiary would be added to net income. D. Proceeds from the sale of long-term investments would be added to investing activities. E. Loss on sale of equipment would be added to net income.

C. Non-controlling interest in net income of subsidiary would be added to net income.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013, are as follows: Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account? A. $70,000 increase. B. $70,000 decrease. C. $15,000 increase. D. $15,000 decrease. E. No adjustment is necessary.

D. $15,000 decrease.

Stevens Company has had bonds payable of $10,000 outstanding for several years. On January 1, 2013, when there was an unamortized discount of $2,000 and a remaining life of 5 years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market for $11,000. The bonds pay 6% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2013. A. $1,000 gain. B. $1,000 loss. C. $2,000 loss. D. $3,000 loss. E. $3,000 gain.

D. $3,000 loss.

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What adjustment is needed for Webb's investment in Jones account? A. $180,000 increase. B. $180,000 decrease. C. $30,000 increase. D. $30,000 decrease. E. No adjustment is necessary.

D. $30,000 decrease.

Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? A. Cash flows from operating activities. B. Cash flows from investing activities. C. Cash flows from financing activities. D. Supplemental schedule of noncash investing and financing activities. E. They do not appear in the consolidated statement of cash flows.

Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? A. Cash flows from operating activities. B. Cash flows from investing activities. C. Cash flows from financing activities. D. Supplemental schedule of noncash investing and financing activities. E. They do not appear in the consolidated statement of cash flows.

On January 1, 2013, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30 percent of Involved's preferred stock, and $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: What is the total acquisition-date fair value of Involved? A. $2,600,000 B. $4,812,500 C. $3,062,500 D. $2,312,500 E. $3,250,000

B. $4,812,500

On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On January 1, 2013, Garvin Co. sold 10,000 shares of previously unissued common stock for $15 per share. Riney did not acquire any of these shares. What is the balance in Investment in Garvin Co. after the sale of the 10,000 shares of common stock? A. $552,000. B. $560,000. C. $460,000. D. $404,000.

B. $560,000.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows? A. $7,000 increase to net income as an operating activity. B. $7,000 decrease to net income as an operating activity. C. $5,600 increase to net income as an operating activity. D. $5,600 decrease to net income as an operating activity. E. $7,000 increase as a financing activity.

B. $7,000 decrease to net income as an operating activity.

A company had common stock with a total par value of $18,000,000 and fair value of $62,000,000; and 7% preferred stock with a total par value of $6,000,000 and a fair value of $8,000,000. The book value of the company was $85,000,000. If 90% of this company's total equity was acquired by another, what portion of the value would be assigned to the non-controlling interest? A. $8,500,000. B. $7,000,000. C. $6,200,000. D. $2,400,000. E. $6,929,400.

B. $7,000,000.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013, are as follows: Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the new percent ownership Ryan owns in Chase? A. 80.0%. B. 87.5%. C. 90.0%. D. 75.0%. E. 82.5%.

B. 87.5%.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013 are as follows: Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)? A. 80%. B. 95%. C. 64%. D. 76%. E. 69%.

B. 95%.

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition? A. Any gain or loss is deferred on a consolidated income statement. B. Any gain or loss is recognized on a consolidated income statement. C. Interest revenue on the affiliated debt is recognized on a consolidated income statement. D. Interest expense on the affiliated debt is recognized on a consolidated income statement. E. Consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds.

B. Any gain or loss is recognized on a consolidated income statement.

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. Which of the following statements is true? A. Since the sale was made at the end of the year, the parent's investment account is not affected. B. Since the shares were sold for more than book value, the parent's investment account must be increased. C. Since the shares were sold for more than book value, the parent's investment account must be decreased. D. Since the shares were sold for more than book value but the parent did not buy any of the shares, the parent's investment account is not affected. E. None of these.

B. Since the shares were sold for more than book value, the parent's investment account must be increased.

All of the following are examples of variable interests except A. Guarantees of debt. B. Stock options. C. Lease residual value guarantees. D. Participation rights. E. Asset purchase options.

B. Stock options.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. How is the loss on sale of land reported on the consolidated statement of cash flows? A. $20,000 added to net income as an operating activity. B. $20,000 deducted from net income as an operating activity. C. $15,000 deducted from net income as an operating activity. D. $5,000 added to net income as an operating activity. E. $5,000 deducted from net income as an operating activity.

D. $5,000 added to net income as an operating activity.

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2013. Stoop's diluted earnings per share (rounded) is calculated to be A. $5.62. B. $3.26. C. $3.11. D. $5.03. E. $4.28.

D. $5.03.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used? A. It is ignored. B. $6,000 subtracted from net income. C. $4,800 subtracted from net income. D. $6,000 added to net income. E. $4,800 added to net income.

D. $6,000 added to net income.

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013, are as follows: Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the adjusted book value of Chase Company after the issuance of the shares? A. $608,000. B. $720,000. C. $680,000. D. $760,000. E. $400,000.

D. $760,000.

On January 1, 2013, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30 percent of Involved's preferred stock, and $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: Assuming Involved's accounts are correctly valued within the company's financial statements, what amount of goodwill should be recognized for the Investment in Involved? A. $(100,000.) B. $0. C. $200,000. D. $812,500. E. $2,112,500.

D. $812,500.

Which of the following statements is true for a consolidated statement of cash flows? A. Parent's dividends and subsidiary's dividends are deducted as a financing activity. B. Only parent's dividends are deducted as a financing activity. C. Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity. D. All of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity. E. Neither parent's or subsidiary's dividends are deducted as a financing activity.

D. All of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity.

Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below: Additional information for 2013: Net cash flow from financing activities was: A. $(28,000). B. $(35,000). C. $(13,000). D. $(63,000). E. $(61,000).

E. $(61,000).

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value was expensed by $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. Where does the non-controlling interest in Stage's net income appear on a consolidated statement of cash flows? A. $30,000 added to net income as an operating activity on the consolidated statement of cash flows. B. $30,000 deducted from net income as an operating activity on the consolidated statement of cash flows. C. $30,000 increase as an investing activity on the consolidated statement of cash flows. D. $30,000 decrease as an investing activity on the consolidated statement of cash flows. E. Non-controlling interest in Stage's net income does not appear on a consolidated statement of cash flows.

E. Non-controlling interest in Stage's net income does not appear on a consolidated statement of cash flows.

MacDonald, Inc. owns 80 percent of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows? A. Include 80 percent as a decrease in the investing section. B. Include 100 percent as a decrease in the investing section. C. Include 80 percent as a decrease in the operating section. D. Include 100 percent as an increase in the operating section. E. Not reported in the consolidated statement of cash flows.

E. Not reported in the consolidated statement of cash flows.

Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows? A. Included as a decrease in the investing section. B. Included as an increase in the operating section. C. Included as a decrease in the operating section. D. Included as an increase in the investing section. E. Not reported in the consolidated statement of cash flows.

E. Not reported in the consolidated statement of cash flows.

Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows? A. Cash flows from operating activities. B. Cash flows from investing activities. C. Cash flows from financing activities. D. Supplemental schedule of noncash investing and financing activities. E. They do not appear in the consolidated statement of cash flows.

E. They do not appear in the consolidated statement of cash flows.

Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom would the loss be attributed? A. To Safire because the bonds were issued by Safire. B. The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt. C. The loss should be amortized over the life of the bonds and need not be attributed to either party. D. The loss should be deferred until it can be determined to whom the attribution can be made. E. To Regency because Regency is the controlling party in the business combination.

E. To Regency because Regency is the controlling party in the business combination.

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2011, when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2014. On January 1, 2014, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. On January 1, 2014, Cocker issued 10,000 additional shares of common stock for $21 per share. Popper did not acquire any of this newly issued stock. How would this transaction affect the additional paid-in capital of the parent company? A. $0. B. decrease it by $23,240. C. decrease it by $68,250. D. decrease it by $45,060. E. decrease it by $43,680.

E. decrease it by $43,680.